What is the video game industry? An overview
The video game industry is a beautiful intersection between technology and entertainment, engineer and artist, or in some cases where engineers can express themselves through art.
Let’s get meta before we go any further. What is an industry? What is a sector? Before we go throwing around numbers and measurements, we should first define what we are measuring. Well, an industry is a way to group and classify companies by their primary economic activity (Prosser 2007). This way all the companies that make hardware and publish software for video games as their primary business can be grouped together. There is also a difference to be made between industry and sector. Sectors are broader than industries, examples of UK sectors being education or financial and insurance activities. In our case, in the UK, the video game industry is classed in “J58.2” or “Publishing of Computer Games”, where the J stands for its sector, Information and Communication.
Of course, like with a lot of things in life not all video game businesses fit nicely in this classification, but it’s helpful, nonetheless. It is worth mentioning that there are similar bodies for other countries, doing the same organisational job, like the North American Industry Classification System (NAICS) or The Japan Standard Industrial Classification (JSIC).
So how big is it? It’s big. Bigger than most people appreciate. Bigger than movies, music, and sports. Total estimated global revenues for 2020 were $159.3 billion (Wijman 2020) — that’s a lot of zeros. While movies reached revenues of $100 billion (Rubin 2020), sports $75 billion (Keenan and McCaffrey 2021), and music $20.2 billion (IFPI 2019), I suspect most people would be surprised to learn that these seemingly more mainstream forms of entertainment have been dwarfed by a pass time usually reserved for nerds and kids. Comprised in that huge global market are different segments (Figure 1).
These segments are divided by the platform that a game is played on, because people play games on different devices ranging from our favourite consoles to personal computers (PCs) and mobile devices.
Right, we have a rough idea of the size. Now there is another angle for us to look at, namely the value chain of the industry (Figure 2). We can visualise six different parts or layers that are involved in the making and consumption of a video game. Some companies have a vertical supply chain and do everything themselves; other companies might only do parts of it (Jequinto et al 2014). This model was a helpful way for me to visualise and categorise different parts of the video game industry.
The first is investment, or where the money to pay the people involved in the game is coming from. Not all companies can afford to fund new titles themselves and so seek other ways of funding the production. That could be investment from a financial institution like a venture capital firm buying part of the company or winning a grant at a university competition for you and your mates to keep coding from your bedroom / home office.
The next part is design and creative, this is where we find our designers, artists, and developers. The demand for these highly skilled professionals is high and is what most people would think of when imagining who works on creating video games.
Production and tools include something mysterious called middleware. What is middleware precious? Game engines, game development software and project management tools. These are what the design and creative professionals use in their work to create increasingly complex and higher quality games.
Publishers are those who market games to make sure the end user is aware the game exists, has a positive enough impression of the game, and wants to buy it. Distribution is where the game is bought. Fond memories of Game in the UK or Gamestop in the US come to mind with physical boxes displayed in windows. Though more likely, today a digital copy is bought from a console store, app store or an online platform like Steam or Epic Games.
Hardware: are we imagining PlayStation and Xbox? Nintendo? Alienware? Yes, those are all part of the hardware layer but so are phones, tablets and VR headsets, anything that a video game can be played on. This layer can even be expanded further to the infrastructure that these platforms rely on, such as 5G internet or components such as CPU’s and graphics cards.
The final layer is the player. The end user either plays the game or does not. That’s something that is constantly being monitored so that games can be made that get played. Not just what graphics users want to see, or genres they want to play, but also how that game gets to the player, brick and mortar store, digital download, console, or mobile, single player or multiplayer. The behaviour of the end user is constantly evolving, tastes changing as new generations and geographies fall in love with this fantastic entertainment.
But what about those big companies (that make too many DLC’s)? Well, they can be roughly divided into developers, publishers, and platforms. Independent developers like Bungie (the developer of Halo and Destiny) are increasingly rare as large publishers like EA and Activision Blizzard or platforms like Sony and Xbox buy and take their developers in-house.
Developers are sometimes divided into first, second- and third-party developers, where first is in-house (Sony’s Naughty Dog), second develops games exclusively for a platform (Intelligent Systems for Nintendo) and third-party are platform independent like Take Two Interactive.
Much more can be said about franchises in the world, the indie game scene or trade bodies who play an integral part in the promotion and advocacy of the video game industry at government level. Food for though for another blog post.
I hope this short overview gave you a sense of the size and scope of the video game industry.
Next week, we will travel back through time in the history of video games!
References
Executive Office of the President Office of Management and Budget. 2017. North American Industry Classification System. Available at: https://www.census.gov/eos/www/naics/2017NAICS/2017_NAICS_Manual.pdf [Accessed: 28/01/2021].
IFPI. 2019. IFPI Global Music Report. Available at: https://www.ifpi.org/ifpi-issues-annual-global-music-report/ [Accessed: 31/01/2021].
Jequinto, J et al. 2014. The Pulse of Gaming. Gaming Disruption. Available at: https://www.accenture.com/us-en/~/media/Accenture/Conversion-Assets/LandingPage/Documents/3/Accenture-3-LT-10-Pulse-Gaming-Disruption.pdf [Accessed: 28/01/2021].
Keenan, M and McCaffrey, M. 2021. 2021 Sports Outlook: 2020 changed the game for sports. What’s next? PWC. Available at: https://www.pwc.com/us/en/industries/tmt/library/sports-outlook-north-america.html [Accessed: 28/01/2021].
Ministry of Internal Affairs and Communications. 2016. General Rules of the Japan Standard Industrial Classification. Available at: https://www.stat.go.jp/english/data/e-census/2016/industry.html [Accessed: 28/01/2021].
Prosser, L. 2007. UK Standard Industrial Classification of Economic Activities 2007 (SIC 2007). ONS. Available at: https://www.ons.gov.uk/file?uri=/methodology/classificationsandstandards/ukstandardindustrialclassificationofeconomicactivities/uksic2007/uksic2007webamend8531.pdf [Accessed: 28/01/2021].
Rubin, R. 2020. Global Entertainment Industry Surpasses 100 Billion for the First Time Ever. Variety. Available at: https://variety.com/2020/film/news/global-entertainment-industry-surpasses-100-billion-for-the-first-time-ever-1203529990/ [Accessed: 28/01/2021].
SQA. 2012. Games Industry Value Chain. SQA. Available at: https://www.sqaacademy.org.uk/pluginfile.php/30460/mod_resource/content/9/12032012/Design/OC1/documents/value%20chain.pdf [Accessed: 28/01/2021].
Trip, S et al. 2020. Video Games in the 21st Century: 2020 Economic Impact Report. TEConomy Partners LLC. Available at: https://www.theesa.com/wp-content/uploads/2019/02/Video-Games-in-the-21st-Century-2020-Economic-Impact-Report-Final.pdf [Accessed: 28/01/2021].
Wijman, J. 2020. The World’s 2.7 Billion Gamers Will Spend $159.3 Billion on Games in 2020; The Market Will Surpass $200 Billion by 2023. Newzoo. Available at: https://newzoo.com/insights/articles/newzoo-games-market-numbers-revenues-and-audience-2020-2023/ [Accessed: 28/01/2021].
